The government plans to launch a £1bn emergency venture capital fund in a bid to throw a lifeline to technology start-up firms.

The fund has won the backing of the new science and innovation minister Lord Drayson. It will form the centrepiece of a dramatic shift in industrial policy which will see more intervention from government.

The plan, conceived by the National Endowment for Science, Technology and the Arts (Nesta), was fleshed out in discussions at Downing Street last Thursday morning between Gordon Brown, Drayson and Lord Sainsbury.

Many 'pre-revenue firms' are facing a battle for survival as they struggle to get finance. There are fears that the doubling of government funding for scientific research at universities, which has led to an increased number of spin-outs in IT, biotech, nanotech and green technologies, will count for nothing if money is not quickly distributed to them.

There are hopes that the plan will be formalised early in the new year. It could be the most significant direct investment in new technology firms since the post-war Labour government created 3i to provide risk capital to growing businesses, said Nesta chief executive Jonathan Kestenbaum. 'In benign economic conditions, a decision like this might take a long time. But now I think there's a consensus in government and beyond that something needs to be done quickly. Our sense is there is real momentum.'

The venture fund will seek to draw in cash from the private sector including private equity, universities and mainstream business. In recent years, private equity, a traditional supporter of early stage firms, has all but pulled out of the sector.